Reality Check
Five things advisers can do to help participants 50 and older to prepare for a leaner, and likely meaner, retirement
Reported by Judy Ward
The market’s volatility especially scares a lot of participants nearing retirement. To calm those fears somewhat, Katz says that advisers can help them plan one post-retirement bucket of money for short-term budgetary needs and one for longer-term money. “People are paycheck-oriented: Their whole life, they get periodic payouts,” she says. “They are going to have to introduce income streams into the distribution phase. We figure out what a client needs monthly for expenses, and put up to two years of expenses in a separate reserve account. That is what they draw from. That makes the clients feel secure, because they have the money to live on.” That pot of money for short-term expenses gets invested in money market securities as well as fixed income such as Treasury or municipal bonds with maturities up to one year. “It is always very short-term, so that they can get at it quickly,” she says.
“The [long-term] investment account is allocated according to their investment-return needs, depending on their risk tolerance,” Katz says. “They may be 60% to 70% in equity and 30% to 40% in bonds. It just depends on what they need to make that [money] last.” It gets rebalanced periodically, she says, and the short-term account gets replenished as needed at that time.
Ciullo likes the two-bucket approach, too, especially in these nerve-wracking times. He describes it as one bucket for “needs” and one bucket for “wants.” “With the first bucket, you are getting the emotion out of it,” he says. The money in the second bucket can grow in an investment account, because a retiree does not need it immediately. It can get invested in something like a balanced fund with a 50/50 or 60/40 split of equity and fixed income, Ciullo says.